Streams

Taxing the Rich

Friday, December 09, 2011

Robert Frank, wealth reporter for The Wall Street Journal and author of The High-Beta Rich: How the Manic Wealthy Will Take Us to the Next Boom, Bubble, and Bust, talks about the pros and cons of taxing the rich and says the risk is not from "rich flight."

Guests:

Robert Frank
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Comments [39]

Prof. Frank, I'm disappointed. from High beta income ? No, sales of assets lead to variable gain


Prof. Frank, I'm disappointed by your interview. Surely, you are aware of the distinction between expediture and taxable income from sale of Assets!

Consider a wealthy person who sells assets to pay for their lifestyle of $2 million
per year. Sometimes, particularly during boom years, assets will be sold at a gain -
generating capital gains "income". Other times, particularly during downturns, some of the assets may be sold at a loss. For (tax) accounting purposes, this means that the net "income" reported will be much less, because sales which created a loss, will offset the taxable "income" of sales that generated a profit. So the "income" of people who live mostly off assets rather than working for a living has very little to do with either wealth or expenditure level. (Most middle class
people, on the other hand, don't have much freedom in choosing when to recognize taxable income. Furthermore, they have far less ability to engage in legal accounting tricks to reduce their taxable income.)

Prof. Frank, as a well-respected economist, who probably should have won a Nobel prize by now for his earlier work,
surely, you are aware of this ?

I hope you aren't selling out and sucking up
to the wealthy in hopes of getting some scraps.

The wealthy have been getting away with almost everything.

Perhaps we should ask, "what have they done for society to deserve this ?".
Often, it's little more than everyone else.
Sometimes, their impact has been decisively harmful to America and its people.

We should also ask : "if the rich weren't doing their job, how hard would it be to find someone else - with comparable years of industry experience and skills to do it for
one tenth the price. Typically, there'd be
plenty of skilled replacements - although as you noted in your earlier work - in a "winner take all" society, boards bid through the roof to get a "star" - someone
perceived as being provably "above average". Past performance is no guarrantee of future returns....

High beta rich my ... donkey.

Dec. 11 2011 06:31 PM
Richest 40 people have $1.2 Trillion (Forbes) from What would a 5%/yr asset tax >$50 Million offer ?


The Richest 40 people in the U.S. have $1.2 Trillion in Assets.

Consider the revenue from a 5 % per annum Asset tax ONLY on assets above
$50 million.

On these 40 PEOPLE ALONE it would
produce $ 60 BILLION in revenue per year.
At $30,000 per job, that would produce enough money for the government to DIRECTLY HIRE 2 MILLION people.
(WPA style).

That's right :

40 people versus 2 MILLION people.

Mill would have no problem with that choice.

Extreme wealth is a stewardship. If the ultra-wealthy do not invest back in the country that helped make them rich, if they sit on cash, then over time they should lose that stewardship. (Note : even decades later they'd still be extremely wealthy - just less so). (If they simply buy a stock index (not much work or brilliance required) the long run avg return is much higher than 5 % per year).

There's no way the Richest 40 people are personally creating 2 Million jobs. But if the government taxes them properly -
by taxing ASSETs not income,
GOVT can directly hire 2 MILLION!

Dec. 10 2011 05:53 PM

@Ben in Brooklyn
Relisten to the show. His only point about trickle down was it has a marginal effect but "trickle up" has been devastating and has obviously exposed the chronic dependence of state govts' on the taxes paid by the uber rich.
The irony of Dems wanting to increase that disastrous dependence by increasing taxes on the rich is priceless.

Dec. 09 2011 09:59 PM
Yes Prof Frank, Tax Assets of the Rich from 1 % p.a. Asset tax on Assets > $5 Million


Prof. Frank makes a good point regarding
the volatile nature of tax revenues from the incomes of the rich.

Solution :
Tax assets instead (or in addition).

For example, a 1 % per annum tax on
assets over $ 5 million would raise
an enormous and reliable amount of money for the government without being
regressive in any way.

Note that wealthy individuals are able also to substantially manipulate WHEN they recognize a profit from sale of assets.
Not only do they have the ultra-low capital gains rates, but they can also play Legal
accounting tricks with how much they owe and when.

An 1% annual tax on assets above $5 million would solve most of these issues.

(It'd also make individuals and companies
less likely to sit on large amounts of non-productive cash, and encourage them to invest it to create jobs. (YES, Virginia, you don't have to Bribe the wealthy into creating jobs, you can - instead - Tax them more if they don't.)

While you're at it, SIMPLIFY the tax code by taxing capital gains at the same rates as earned income (this will also be progressive, since small amounts of capital gains (for example retirees) would
be in the lower brackets, and large amounts would be in higher brackets).

Dec. 09 2011 06:10 PM

Your guest is misinformed and uninformed. Just to name two examples: he presented no objective, empirical evidence and was absolutely clueless on the Euro crisis.

You should have invited Krugman on as a counterpoint or at least asked more critical questions.

Having said all this, I still love your show.

Dec. 09 2011 02:31 PM
Taher from Croton on Hudson

dboy total agreement with you. Look, journalism today, in America, is nothing more then propaganda for the corporate state. You really can’t make living let alone be on the radio, publish books, be on the web, TV without having drank that Kool-Aide.

Dec. 09 2011 01:39 PM

What happened to long-term, PRODUCTIVE investment???

What we have now is high tech gambling producing nothing but ephemeral "profit".

There is a fundamental problem with the system.

We should NOT be held hostage by the fleeting puesdo-profit of techno-gambling!!

Time to throw this bath water OUT!!

IT REEKS!!

Dec. 09 2011 12:49 PM

The paradigm of ENORMOUS profit is NOT sustainable!

How much makes it worth it???

When new profit records are hit they become the new status quo.

How can this cycle continue??

Answer: It can't!

Dec. 09 2011 12:35 PM

What this guy does not get is that the fundamental paradigm it TOTALLY F*d UP!!

Why do we have to accept the boon/bust roller coaster ride of elitist risk taking??

Why do we need to rely on the tax dollars of the huber-rich??

Unfettered greed is the problem.

ENOUGH!

Would you call this aspirational "journalism"?

Robert Frank's objectivity is clearly compromised by the Kool Aid® the friends he clearly envies, have fed him

Dec. 09 2011 12:30 PM
Taher from Croton on Hudson

Sorry, FOX News and Murdoch and company, and Wall Street Journal all the same?

Dec. 09 2011 11:54 AM
Taher from Croton on Hudson

I am waiting for Brian to bring in a guest from FOX News. He did bring a rep from Murdoch and company.

Dec. 09 2011 11:51 AM
Hicoachrich from Murray Hill

Did Brian's audience suddenly get dumbed down or did they decide to live without media and information? Sheldon shows true wisdom, unlike the many other cynical, nihilistic comments. Poughkeepsie ain't NYC...I live in NYC and have had a home in New Paltz --directly cross the river from Pough--for 20 years---my friends in Ulster County will never understand the world of NYC without living it, and vice versa.
And I worked in the financial services industry for 35 years, and what it looks like today has little resemblance to the worthwhile services pre-high beta wealth era firms performed. Robert Frank has identified in his way a serious, major shift in what that industry does now, and how it operates now, versus what it was even 15 years ago, never mind 20 or 30 years ago. His contribution is very valuable, and the regulators and politicians should pay attention. Trading and betting with leverage is not investing, it is gambling. But this gambling is legal and more damaging than buying lottery tickets. I agree with Sheldon---raise the rates and make it less attractive to gamble---all gambling weighs risk and probabilities and potential profit margins. Making it not worth the risk is only one step we should take. Incenting true investment and financing of industry and public works is necessary as well, as are many rules controlling leverage, and mandating and maintaining a large ownership and the attendant risk of instruments an investment bank creates--maybe like 75%...

Dec. 09 2011 11:44 AM
VANESSA from nyc

Regarding getting back to 'quality' in efforts to earn a living:
I don't understand why there isn't more conversation about bringing manufacturing back to the United States. I understand it's a massive undertaking, but I feel a necessary one. Why not give better tax breaks/incentives to companies willing to bring their operations back to the States?

Dec. 09 2011 11:31 AM
John L

I was skeptical at first listening to this guy -- however, what his observations REALLY seem to be, are an indictment of the FUNNY MONEY of the financial system -- a system that creates no real wealth because it's based only on the manipulation of numbers on balance sheets, rather than the creation of real goods and services: tangible objects and their delivery, that actually increase the quality of life of real, living, people - housing, food, healthcare, transportation, and consumer goods.

Dec. 09 2011 11:30 AM
ken from Brooklyn

Statistics show exactly the opposite of what your guest is saying about Trickle Down Economics.

Economists Thomas Piketty and Emmanuel Saez found that from 1950 through 1980, the share of all income in America going to everyone but the rich increased from 64 percent to 65 percent. Because the nation's economy was growing handsomely, the average income for 9 out of l0 Americans was growing, too - from $17,719 to $30,941. That's a 75 percent increase in income in constant 2008 dollars.

But then it stopped. Since 1980 the economy has also continued to grow handsomely, but only a fraction at the top have benefited. The line flattens for the bottom 90% of Americans. Average income went from that $30,941 in 1980 to $31,244 in 2008.

Think about that: the average income of Americans increased just $303 dollars in 28 years. That's wage repression.

And if you look at unemployment numbers from 1950 to Present there is no real drastic drop in unemployment since the restructuring of the tax code from the 1980's. Allowing the wealthy to hold more money has not caused any drastic spike in hiring.

It's been 30 years and I still have not seen the benefits trickling down.

How does your guest justify this failed policy for the 99%?

Dec. 09 2011 11:29 AM
John A.

Congrats to the author for creating one of the more Google-able phrases.

A prior NPR appearance:
http://www.npr.org/2011/11/16/142407107/binges-of-high-beta-rich-shake-up-u-s-economy

One supporting argument for his point is the growth of program trading, leading to "emergent" market behaviors and mystery crashes.

BTW I don't mind this guy, but his message is softball.

Dec. 09 2011 11:29 AM
Taher from Croton on Hudson

Right Mr.” Wall Street Journal Reporter", all the banks that lent money to the PIGS countries knew that these nations could not pay them back. Goldman made millions off the transaction. Now the average folks there are told you’ve got to eat shi… Thank you for you insights.

Dec. 09 2011 11:28 AM
Chris from Queens

This concept seems to gloss over the fact that a high tax on the extremely wealthy is a necessary step to re-establishing a healthy middle class. It really is good sense that basing budgets on the fortunes of the few is a disastrous policy. However, this is not a permanent process.

It is not as if we are saying that permanent high taxes on the rich are the best way to support an underclass of unproductive louts. We are saying that most of us have lost most of what we need to survive, and thriving is nearly off the table.

Tax the rich long enough that the rest of actually Have anything to build a budget on. Squeeze the wet sponge to moisten the dry one, lest squeezing the dry one cracks it.

Dec. 09 2011 11:24 AM
Sophie from Poughkeepsie, NY

@Robert from NYC

Yes this guy is really something, what is he TALKING about?

Dec. 09 2011 11:23 AM

Doesn't your guest realize that this obsession with instability is the reason why people can't get together and make a new system?

Dec. 09 2011 11:23 AM
Matt

Is it possible higher rates will make them less manic? And that the lowering of rates since the 80s is what made them more manic?

Dec. 09 2011 11:23 AM
Sheldon from Brooklyn

Hmm, New York not budgeting for shortfalls in revenue, is like Saudi Arabia not doing the same for possible lower oil prices.

Dec. 09 2011 11:22 AM
Taher from Croton on Hudson

"Wall Street Journal Reporter", what a reasonable argument he is making. Leave the poor/rich “middle class zillionaires alone. Come on what is this a comedy show?
Brian and his producers and the guest think that the listing audience is in a kindergarten.

Dec. 09 2011 11:21 AM
Catherine from Brooklyn

Question for speaker -
Can you please comment on the gains of the wealthy as TARP benefits were provided to companies and wealthy investors were positioned to gain as those companies? I am sympathetic to the notion that taxes are being restored not raised and wonder if affluence in this gain is a good example in that debate.

Dec. 09 2011 11:21 AM
GW from Queens

The problem is we are devoting way too much economic focus and attention to the gambling side of the economy creating these cyclical rich and impoverishing everyone else. When wealth is more evenly distributed the economy is much more stable. Its the new and quickly gotten wealth that is the most destabilizing

Dec. 09 2011 11:18 AM
Jon from Nj

Did your guest really just use the term"middle class millionaires"? There is an actual middle class in this country, defined using actual statistics, and millionaires don't exist in it. That your guest would simply join the two together for the purpose of alliterative expediency in characterizing a segment of the still very wealthy, the actual millionaire, shows how out of touch he is with the real middle class, and perhaps with the real problems and solutions facing our economy.

Dec. 09 2011 11:18 AM
Sophie from Poughkeepsie, NY

This is laughable.

So I guess a 200K income will now be considered poverty level. ;~)

Spin doctor spinning.

Dec. 09 2011 11:17 AM
John A.

The statement isn't 'typically' "the rich create jobs", it's Incessant!
I can't wait for the message to burn out through overuse.

Dec. 09 2011 11:17 AM
Rebecca from Queens, NY

ProPublica reports today "NY’s Tax Overhaul, Said to Raise Taxes on the Rich, Actually Doesn’t"

http://www.propublica.org/article/nys-tax-overhaul-said-to-raise-taxes-on-the-rich-actually-doesnt

Dec. 09 2011 11:17 AM
Scott from Brooklyn

I heard a great term recently, "phantom wealth." We shouldn't treat all wealth the same. The great swings in wealth among the rich, are swings in phantom wealth, wealth based on the rise and fall of the stock market. Stock prices rise and fall for lots of reasons, but basically it is because all of sudden we treat that stock as worth more. Ask your guest about phantom wealth and if we've become dependent on it.

Dec. 09 2011 11:15 AM
fuva from Harlemworld

This is silly. Those who can afford it, who can pay more taxes without it threatening their sustenance, who have gained the most from societal resources, should pay more. Revenues always fluctuate with incomes, this is now new, and adjustments can be made accordingly.

Dec. 09 2011 11:15 AM
Robert from NYC

Please, PLEASE, so much spin I'm getting dizzy. Please stop. Sell this garbage to those who will buyit!

Dec. 09 2011 11:14 AM
Helen from manhattan

is there such a thing as a middle class multi millionaire? These people worth $5 million wouldn't really be considered middle class anywhere. And have we actually lost any of these so called middle class millionaires to other states? I haven't seen any proof of that. And the fact that bonuses for these people being down by 30 to 40% is hardly an issue for concern considering the real middle class often has salary freezes for the last few years.

Dec. 09 2011 11:14 AM
Sheldon from Brooklyn

Cuomo hit the right balance. The so-called "millionaires'" tax was punitive, arbitrary, and disingenuous.

The new tax structure, which taxes actual millionaires, makes more sense.

Now, if Albany can simply cut more spending.

Dec. 09 2011 11:13 AM
ed from east village

Wow! I can't believe this guest just used the term "middle class millionaire".

Dec. 09 2011 11:13 AM
horatio from new york

"middle class millionaires"? really? gimme a break!

Dec. 09 2011 11:13 AM
MC from Manhattan

5 million to 0? I worked on the David Brooks trial (the arms dealer) When these people declare that they have "no money" you can bet that they have cash hidden all over the world as well as jewelry and other assets that are concert able.if they don't then they are not as smart as they should be . Sorry but you can't make me sympathetic to the rich look at the Corizien scandal where is all that money

Dec. 09 2011 11:12 AM

i don't understand where would they move to alabama? rich people love the infrastructure that blue states have (ie museums and ballets etc.) besides with all the trust funds and tax shelters no one with an accountant pays taxes.
but if they want to leave let them.

Dec. 09 2011 11:03 AM
Eric from Washington Heights

The rich do not move when taxes go up. Test case in New Jersey examined effects of those migrating into and out of the area after a tax rate increase on the upper brackets. You'd expect there to be more outbound migration in that group? No. http://www.peri.umass.edu/fileadmin/pdf/published_study/Migration_PERI_April13.pdf

Dec. 09 2011 08:32 AM

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